* Kocherlakota, Stein stake out opposing views on fighting
* Bullard says thinks Yellen's "six months" was meant to
* BoE's Dale: I don't know where interest rates will be in
* Fisher sees "quite some time" before rate hike
* Kocherlakota explains his lone dissent
(Adds Stein, Kocherlakota comments)
By Ann Saphir and Jason Lange
WASHINGTON, March 21 Two top Federal Reserve
policymakers staked out diametrically opposite views on Friday
about whether the U.S. central bank should be willing to risk
higher unemployment in order to head off a potential financial
One Fed Board member, Jeremy Stein, said that it should. The
other, Minneapolis Fed President Narayana Kocherlakota,
The two former economics professors debated in the
jargon-laden lingo and polite tones of lifelong academics at a
conference held in the Fed's Washington headquarters.
But it suggested the real-life tensions that loomed as Janet
Yellen ran her first policy-setting meeting earlier in the week,
in the Fed building across the street.
As the world's most powerful central bank winds down its
massive bond stimulus program aimed at bolstering the U.S. jobs
market, Fed officials appear increasingly worried that keeping
policy so easy for so long could encourage investors to take too
many risks, building bubbles that may eventually pop and roil
Stein has warned publicly for a more than a year that low
rates could be stoking financial instability, and on Friday
argued that excessively low expected returns in the bond market
may be a sign that it is time to reduce Fed stimulus, even if
doing so hurts jobs.
Kocherlakota for his part argued that the cost of raising
rates to head off the unlikely possibility of a crisis is simply
not worth it.
Indeed, he wants to add to the Fed's monetary accommodation
by promising to keep rates near zero until unemployment reaches
a healthy 5.5 percent, and earlier this week dissented from the
Fed's policy decision in part because his colleagues would not
agree to peg rate decisions to the unemployment rate.
At a separate conference of economists on the other side of
Washington, a top Fed official appeared to defend Yellen's
market-roiling remark earlier this week that suggested the
central bank could raise interest rates next spring, around six
months after ending its massive bond-buying program.
"On the considerable period being six months, the surveys
that I had seen from the private sector had that kind of number
penciled in," St. Louis Federal Reserve Bank President James
Bullard said during a lunch with journalists at the Brookings
Institution. "That wasn't very different from what we had heard
from financial markets. So, I just think she's just repeating
After a two-day policy meeting on Wednesday, the Fed said it
expected to keep benchmark interest rates near zero for a
"considerable time" after it wrapped up a bond-buying stimulus
program, which it is widely expected to do toward the end of the
Pressed on the statement at a news conference afterward,
Yellen said the phrase "probably means something on the order of
around six months or that type of thing." Stocks and bonds
immediately tumbled as traders took the statement to suggest
rate hikes could come sooner than they had anticipated.
Futures traders on Friday continued to bet that April 2015
would mark the Fed's first rate hike. That's three months
earlier than they had thought before the Fed's policy-setting
At the Fed on Friday, the Bank of England's chief economist
told fellow economists and policymakers that central bankers
should stick to telling markets the economic conditions that
could set the stage for rate rises, rather than the timing of
"I know I don't know what will happen to interest rates in
the next six to 12 months," said Spencer Dale who coincidentally
was speaking in the same room where Yellen had made the
contentious remark two days earlier.
Yellen did not attend the conference Friday.
In London, Richard Fisher, the hawkish chief of the Dallas
Fed, dodged a question about how he would define "considerable
But in answering a separate question related to the Fed's
tools for exiting its extremely easy monetary policy, he
suggested a rate hike was still a long ways off.
"I'm not going to put a time frame (on it) ... It will be
quite some time," he said.
The question over when the U.S. central bank will first
raise rates from the near-zero level they have been since late
2008 is critical to households and businesses alike as they make
their plans for spending, investment and hiring.
Yellen has argued that clear communications about the Fed's
policy intentions are key.
With the goal of transparency in mind, the Fed since
December 2012 had promised to keep rates low until the
unemployment rate fell to at least 6.5 percent, as long as
inflation did not threaten to rise above 2.5 percent.
But now that unemployment has fallen to 6.7 percent, and the
Fed's preferred gauge of inflation is still little more than
half of its 2-percent target, policymakers this week decided to
jettison that guideline.
(Additional reporting by Ana Nicolaci da Costa and Natsuko Waki
in London and Ann Saphir in Washington; Writing by Ann Saphir
and Jason Lange; Editing by Lisa Shumaker)